There is a viral email circulating claiming the new health care bill contains a 4% “transfer tax” on home sales. This came out of an inaccurate opinion piece from the Spokane Washington Spokesman-Review newspaper.
The health care bill included a provision that imposes a new 3.8% Medicare tax for some high-income households that have “net investment income”. Any revenue collected by the tax is dedicated to the Medicare hospital insurance program.
This new tax applies only to households with Adjusted Gross Income (AGI) of more than $200,000 for individuals or $250,000 for married couples. Since capital gains are included in the definition of net investment income, an additional tax obligation might result from the sale of real property.
Even if the AGI limits are met, the new tax would not be automatically applied to capital gains that result from the sale of a principal residence, since the existing exclusion rule still applies to $250,000 for an individual and $500,000 for a couple. If the gain from the sale of the principal residence is below that amount then no gain would be realized and NO Medicare tax will have to be paid on the gain. The new Medicare tax would apply only to a realized gain that pushes the filers AGI over the $200/$250k income limits.
The new Medicare tax will take effect for tax years ending on or after January 1, 2013. And this new legislation makes no changes to the mortgage interest deduction. A more detailed discussion is contained in a brochure that can be downloaded at http://www.ksefocus.com/billdatabase/clientfiles/172/8/1437.pdf